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The 'Wall Street skim' on higher education

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As if student debt levels soaring to more than $1.2 trillion isn't shocking enough, a new report released by the AFT on May 22 shows that a large portion of the billions Americans spend on higher education each year ends up in the pockets of Wall Street and other financial profiteers.

"In 2012, our total spending on higher education was $525 billion," said AFT President Randi Weingarten. "This was more than twice what any comparable country spent that year. We need to understand, where did it all go? We need the people who are going to college to not be saddled with unsustainable student debt, and for them to have the resources they need to stay in college."

The report, "Borrowing Against the Future: The Hidden Costs of Financing U.S. Higher Education," looks at three buckets of financing costs for higher education: student debt, institutional debt, and the profits taken by equity investors in for-profit institutions. It shows that in a 10-year period, from 2002 to 2012, those costs have more than doubled and make up a whopping 9 percent of the total spent on higher education in the United States.

In 2002, $21 billion was spent on servicing the institutional debt of colleges and universities, on student loan interest payments, and on profit made by for-profit institutions. By 2012, that number was $45 billion at Title IV-funded institutions.

Where did the money go?

As states have steadily disinvested in public higher education, especially during times of recession, institutions have made up the gap by raising tuition and borrowing money for capital projects. The average American family income has declined by about 12 percent since 2006, but college costs have increased by 20 percent. That soaring tuition has everything to do with the increasing levels of student debt. In 2012, $34 billion was spent on student loan interest payments, up 127 percent from 2002.

The largest shares of institutional borrowing have been to invest in amenities, such as recreation centers, dining halls, dormitories and athletics, ostensibly to attract and retain students. In 2012, the cost to institutions for this "amenities arms race" was $11 billion in interest payments.

Finally, in the past decade, for-profit institutions have benefited mightily from loosened federal regulations that gave them broad access to taxpayer-funded student aid dollars. This source of income was a business model that attracted equity investors who then expected a return on their investments. At the height of their profit-making, the total return to profiteers (and thus the drain on taxpayers) was $4 billion in 2010. In 2012, after congressional crackdowns, those profits were down to $1 billion.

At a community conversation in Washington, D.C., which the AFT sponsored to release the report, Rep. Mark Takano (D-Calif.) and United States Student Association President Sophia Zaman joined Weingarten and the lead author of "Borrowing Against the Future," Charlie Eaton, to discuss the report's findings.

"This report is the evidence for what has been my experience," said Zaman, adding that the USSA has been working for years on a campaign to address the profits of the biggest student lender, Sallie Mae. "These Wall Street profits are not just a barrier to economic justice, but to racial and social justice. We need to highlight this corruption in the higher education economy."

What Eaton found most disturbing about his research, he said, was both the scale of the skim and how rapidly it has grown. The effect "ripples throughout the system," he said. In California, for example, community colleges paying higher debt service end up cutting classes, and students end up staying in school longer. The money is not going into instruction, so it's not leading to greater student success.

Rep. Takano, a former high school teacher, spoke of the tragedy of seeing 95 percent of his students lured by for-profit school billboards and marketing to apply to those colleges instead of the local community college.

The report was produced by the Center for Culture, Organizations and Politics at the University of California at Berkeley's Institute for Research on Labor and Employment.

To watch a video about the findings, download the full report and take action, visit go.aft.org/skim.

Our Mission

The American Federation of Teachers is a union of professionals that champions fairness; democracy; economic opportunity; and high-quality public education, healthcare and public services for our students, their families and our communities. We are committed to advancing these principles through community engagement, organizing, collective bargaining and political activism, and especially through the work our members do.